A high-risk investment is characterized by which of the following?

• A. No possibility of losing the principal amount
• B. Guaranteed returns with minimal fluctuation
• C. Stable and predictable income streams
• D. A greater potential for loss and higher expected returns

Answer: (D)

Verified step by step guidance

1. Understand the concept of high-risk investments: High-risk investments are financial assets or ventures that carry a significant chance of losing the principal amount but also offer the potential for higher returns compared to low-risk investments.
2. Analyze the characteristics of high-risk investments: These investments typically involve greater uncertainty, volatility, and unpredictability in returns, making them unsuitable for risk-averse investors.
3. Compare the options provided in the problem: Evaluate each statement to determine whether it aligns with the definition of high-risk investments. For example, 'No possibility of losing the principal amount' contradicts the nature of high-risk investments.
4. Focus on the correct answer: 'A greater potential for loss and higher expected returns' accurately describes high-risk investments, as they involve a trade-off between risk and reward.
5. Conclude by reinforcing the key takeaway: High-risk investments are characterized by their potential for significant losses but also the opportunity for substantial gains, making them appealing to investors willing to accept higher levels of risk.